Transaction reporting. The challenges of MiFID and EMIR transaction reporting

Transcription

1 Transaction reporting The challenges of MiFID and EMIR transaction reporting

2 What is transaction reporting? A transaction report is a regulatory requirement, which comprises a set of fields including all descriptive information relating to each trade made by a firm over the course of a period, usually a day. Exemptions do exist for certain classes of trades. Under MiFID the transaction report is made via an approved reporting mechanism on a T+1 basis. Under EMIR the transaction report is made to a trade repository, also on a T+1 basis. Markets in Financial Instruments Directive (MiFID) transaction reporting requirements include coverage for ISIN, OTC and Aii instrument types. FX, commodities and interest rate products are not in scope. European Markets Infrastructure Regulation (EMIR) transaction reporting requirements include coverage for OTC and exchange traded derivatives. Covers FX, commodities, credit, interest rate and equity products. 2 TRANSACTION REPORTING The challenges of MiFID and EMIR transaction reporting

3 Transaction reporting The implementation of MiFID in November 2007 had a profound impact on the existing Financial Services Authority s (FSA) transaction reporting rules. To comply with these rules all regulated firms must report details of their trades to an Approved Reporting Mechanism (ARM) for validation and onward delivery to the FSA. The purpose of the transaction report is to allow the regulator the chance to monitor various issues, which include: policing market abuse passing information to other EU regulators to assist in ensuring compliant trading enabling enhanced conduct of business supervision of the reporting firm, their clients and counterparties. Transaction reports are used by external parties, including the Bank of England and the Panel of Takeovers and Mergers. MiFID requirements Currently there are 28 fields to be reported to the Financial Conduct Authority (FCA) under MiFID. Coverage includes ISIN, OTC and Aii instrument transactions. However, FX, commodities and interest rate products are not in scope for MiFID. MiFID only applies to financial services (FS) firms. Not all FS firms are transaction reporting as their MiFID obligations require and the FCA are now doing more transaction reporting themed visits than ever before. As of November 2013, less than 1000 FS firms are transaction reporting to the FCA. Instruments impacted by regulation MiFID EMIR Cash equities and bonds Securities derivatives (equities/ bonds) FX, commodities and interest rate derivatives Spot FX TRANSACTION REPORTING The challenges of MiFID and EMIR transaction reporting 3

4 EMIR Trade repository reporting From 12 February 2014 there will be an additional 85 fields (26 counterparty and 59 common) to transaction report (OTC and ETD) under EMIR. EMIR transaction reporting obligations apply to all entities Clearing obligations for nonfinancial firms under EMIR depend on the threshold of the notional value of derivatives being exceeded, differing by asset class. However, for reporting of trades there is no threshold and no lower limit. All derivative incorporated in the EEA who trade derivatives, whether or not they are financial service firms. EMIR does not apply to individuals who may purchase derivatives (eg CFDs, spread bets) but the financial firm which deals with them must report a one-sided trade. Unlike MiFID, under EMIR there is no exemption for FX, Commodities or Interest Rate asset classes all derivatives must be reported. Where both contracted parties have an obligation, a report for each side should be submitted to an authorised trade repository, not necessarily the same trades must be reported. one. Before submission, trade data must be agreed between the parties and they must submit using the same Unique Trade Identifier (UTI). One party can delegate reporting to the other, or one or both can delegate to a third party to report on their behalf. However, the firm with the reporting obligation remains responsible for the accuracy of the reports, so they need to be able to retrieve and check the reports made on their behalf. Six trade repositories have now been authorised by the European Securities and Markets Authority (ESMA), each of which has produced a file specification for how data must be submitted to them. As well as the 85 fields stipulated in the regulations, each has added further control fields to assist them in their processing. EMIR was effective from 16 August 2012, so as soon as trade repositories start to accept live trades (12 February 2014) a back-reporting requirement will be triggered for all trades open at or since 16 August New trades and subsequent modifications are reportable by T+1. Six months after reporting commences, trades must begin to be marked to either market or model, with updates sent to trade repositories. Collateral or margin held against reported positions must also be submitted. Back reporting If the trade is open on 12 February 2014 and dealt before 16 August 2012, there are 90 days to report it. If the trade was open on 16 August 2012 but closed by 12 February 2014, there are three years to report it. For trades open at 12 February 2014, back reporting can be done at position level with the status as it is then there is no requirement to report all the events since the contract was executed. 4 TRANSACTION REPORTING The challenges of MiFID and EMIR transaction reporting

5 What you need to do now for EMIR compliance Firms must choose and formalise a connection to a trade repository, with a choice of the following, which have all been approved by ESMA to strengthen risk oversight and allow for more detailed and accurate recording of derivatives trading: The Depository Trust and Clearing Corporation (DTCC) s Derivatives Repository (UK) all asset classes Unavista (UK) all asset classes KDPW (Poland) all asset classes REGIS-TR (Luxembourg) all asset classes CME European trade repository all asset classes ICE Trade Vault Europe Ltd. (ICE TVEL) only commodities, credit, equities and interest rates asset classes Firms must obtain a pre legal entity identifier code (alpha-numeric code which links to unique information identifying companies participating in global markets more applicable to non-fs firms who may not have a pre-existing LEI). Impact on industry All EEA entities trading derivatives, whether they are financial services firms or not, must report all trades to a trade repository by T+1 Life-cycle events such as modifications, terminations and mark-to-market must also be reported by T+1 The trade repository must collect and store transaction reporting data, allowing access to national and European regulators on demand Regulators will use trade repository access to monitor any systemic risk which may be posed by individual or aggregated positions. TRANSACTION REPORTING The challenges of MiFID and EMIR transaction reporting 5

6 How Grant Thornton can help you Grant Thornton has a full range of transaction reporting services and a team of qualified professionals with deep experience of helping clients meet their regulatory requirements. Grant Thornton can assess: if your organisation should be transaction reporting the level of impact MiFID and EMIR transaction reporting will have on your firm. Grant Thornton can help you prepare for EMIR transaction reporting by: assisting through the preparation phase in obtaining an LEI and choosing an appropriate repository reviewing your existing systems and reporting processes and use expertise to provide advice and/or provide assurance. Grant Thornton can provide appropriate training to your: management team compliance team risk team trade support function. Grant Thornton can perform preparedness checks ahead of regulatory reviews or visits. Grant Thornton can perform health checks on quality, accuracy and completeness of transaction data being transmitted to regulators. Grant Thornton can conduct reviews of ownership, governance and controls in place over the reporting process. Grant Thornton can assist with any re-reporting and remediation projects. 6 TRANSACTION REPORTING The challenges of MiFID and EMIR transaction reporting

7 Transaction reporting regulator fines between August 2009 and July 2013 include: Spread betting firm 490, 000 Large investment bank 5.6 million Global retail bank 2.45 million Global investment bank 1.75 million Why Grant Thornton? Grant Thornton is one of the world s leading organisations of independent assurance, tax and advisory firms. These firms help dynamic organisations unlock their potential for growth by providing meaningful, forward-thinking advice. Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions. More than 35,000 Grant Thornton people, across over 100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work. The UK Grant Thornton member firm provides services to over 40,000 privately held businesses, public interest entities and individuals. It is led by more than 200 partners and employs nearly 4,400 of the profession s brightest minds. TRANSACTION REPORTING The challenges of MiFID and EMIR transaction reporting 7

8 Contact us Sandy Kumar Partner Head of Business Risk Services T +44 (0) E sandy.kumar@uk.gt.com Ed Newman Senior Manager Head of Transaction Reporting Services T +44 (0) E ed.newman@uk.gt.com 2014 Grant Thornton UK LLP. All rights reserved. Grant Thornton refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another s acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. grant-thornton.co.uk V23648